AIA Advocate for Absolute Returns : rebound

Association of Investor Awareness - Week of 04/30/2009

Research & Editorial Staff — Thu, 30 Apr 2009 14:20:00 GMT

In This Issue:

Signs Of A Better Economy? (Or At Least Not As Bad?)
Stocks For A Weak Recovery
The Bottom Line This Week

Last month investors received another booster shot from Wall Street as the Dow and the Nasdaq rose an additional 1.2% and 5.5% respectively. The gains left stocks up 26% from the rally's jumping off point. With any luck, and a few encouraging numbers from the economy, the rally could continue for another few weeks.

Lest anyone think the bear is finished, however, we must remind you that the market never moves in a straight line very long. Even if this is the start of a new bull market, we must expect to get some nasty shocks along the way. After such a strong rally, the first correction may be close at hand.

Signs Of A Better Economy? (Or At Least Not As Bad?)

Analysts are all over the map when it comes to predicting the future of the economy. Some see improvements, others think the most we have is a slower decline. A few super bears believe the worst hits are still to come, and they are fastening their safety belts.

Because the economic outlook is the most important issue that investors must deal with right now, we will review the three main arguments for each outlook. Of course, we will finish up by giving you our own sterling opinion.

1) The Economy Is Improving:

The strongest indication that economic relief is on the way is the rising stock market. Although many investors are not particularly well informed about economic matters, it's just the opposite with big spenders – and they are buying stocks. Since the market tends to look ahead from six to nine months, economic relief is probably about that far away.

Consumers are also showing greater confidence in the future by traipsing off to the mall a little more often than they did a few months ago. Since consumers are two thirds of the economy, their improving outlook can be a self-fulfilling prophesy. Spending is still very low, but at least the trend appears to be changing.

Business spending is also on the floor, and it will probably remain there for several months. But with consumers beginning to buy goods again, businesses will need to replace them. Inventories are already low for many products. As with consumers, however, a business turnaround is likely to be modest.

Housing remains weak in most markets, but there are signs of life in others. That's not surprising since home affordability, an established measure of housing trends, is higher than it has been in over five years. Many hopeful homebuyers know that prices could go lower, but they also know they might start to go back up again. As a result, many people who can afford to buy at today's prices are deciding to take the plunge. Lower interest rates are another incentive to buy.

Credit for every type of loan is still tight but the situation isn't as bad as the news stories might have you believe. Throughout America, hundreds of regional banks that didn't follow the subprime path to ruin have money for worthy clients. Lending standards are higher than they were during the boom, but that's a good thing. Only an idiot would want to go back to the loosey goosey standards that brought ruin to our country. The bottom line is, people with good credit histories and a respectable down payment can get mortgages. The same is true for business loans, new car financing, and so on.

Oil prices are remaining low, which is probably doing more for the economy than Washington's bailout program. The drop from almost $150 a barrel to under $50 had the same impact as a huge tax cut. Natural gas prices are also on the floor.

Lastly, the bailouts are helping to stimulate several industries, not just banking. Although we are very concerned about the colossal size of the federal debt, the money is a plus right now.

2) No It Isn't:

Naysayers believe the economy is not improving at all, it is just not dropping as quickly. Although the slowdown may be a technical victory, the bears say there is no way to make "less bad" look like "good."

Pessimists also say that the downward trend could continue and take the economy to the same low place it would have reached at the faster pace. This is known as the "we're dead either way" argument.

Other analysts say that even if the economy stops dropping, that doesn't mean a rebound is anywhere in sight. They point to the Great Depression when growth remained at very low levels for several years. During that time the unemployment rate hit 24% and businesses continued to fail.

3) A Disaster Is On The Way:

The toughest crowd are analysts who are certain that a full-blown depression is coming. They call the new calamity the "Greater Depression" to distinguish it from the not-so-bad Great Depression. Arsenic anyone?

The Armageddon crowd believes that the bailout program won't save the banks because they have been too badly damaged to recover. Instead, the depressionists say, the stimulus money will just put off the inevitable for a few months, and make the collapse all the worse.

The super bears also say the huge federal giveaways are putting so much money into the economy that a period of high inflation –and perhaps hyperinflation- is unavoidable. Therefore, the argument goes, even if the economy starts to pick itself up off the floor, inflation will slam it back down again. The result would be super stagflation, a situation where unemployment remains high at the same time prices soar. It's not a pleasant prospect.

As long-time readers know, we place much more faith on what we actually see happening in the world than what statistics and ivory tower number crunchers say. It's a practice that has kept us in the chips on many occasions when most investors were selling.

For example, we remained bullish on energy efficient industries when oil prices were soaring and most analysts thought modern life was ending. We were of the opinion that railroads, inland shipping companies and other fuel misers would actually benefit from more expensive energy because it would hurt the competition. It turned out that we were right, and our recommendations did well.

Of course, past performance does not guarantee future results, and all that. But for what it is worth, we think the first economic outlook is correct, and the economy is more likely to continue to claw its way out of the hole than it is to begin sinking again. Although a typical recovery seems unlikely, growth should be above the zero mark by the end of the year or by early 2010. If we are correct, many top-quality stocks remain oversold.

Stocks For A Weak Recovery

We hate to repeat ourselves in this newsletter, but on the other hand we never get tired of making money. As a result, we are continuing to recommend the boring multinational stocks that have been doing so well of late. We think their biggest moves are yet to come.

If you only want to make a single blue chip investment, an excellent choice would be the iShares Dow Jones Select Dividend Index (DVY), one of our favorite EFTs. http://finance.yahoo.com/q/bc?s=DVY The index has been performing very well of late. On March 9, DVY closed at $25.91. By April 28, the fund was up to $34.98, a 35% gain. We take back what we said about boring stocks.

We think investors who prefer to buy individual issues should look at three growth companies that should be headed higher.

The first of the three is Alcoa (AA), the giant aluminum producer. http://finance.yahoo.com/q/bc?s=AA Demand for the lightweight metal dropped sharply when the economy fell out of bed and industrial production hit the floor. But even with a small increase in the economy, demand for aluminum should jump smartly.

Deere Company (DE) is another probable winner in an improving economy. http://finance.yahoo.com/q/bc?s=DE The biggest potential for Deere isn't its farm machinery, although sales should improve this year. Instead, demand for the company's construction equipment should begin to rebound as President Obama's infrastructure programs ramp up.

General Electric (GE) http://finance.yahoo.com/q?s=ge should do well as the company continues to get its troubled financial unit back on track. GE's worldwide sales of everything from locomotives to jet engines should also increase. We think this global powerhouse will be a very big long-term winner. A few years from now many investors will wonder how they could have ever thought that GE might not make it through the recession.

Last month we wrote that Ford http://finance.yahoo.com/q?s=F has an excellent "chance for a profitable recovery" and "a small position appears to make sense at today's low price."

That proved to be something of an understatement. When that issue was sent out on March 26, Ford was $2.94. Today Ford closed at $5.45, an 85.4% gain. The worse things get for GM and Chrysler, the better the outlook will be for Ford, the only one of the formerly "big three" automakers that didn't need a bailout. Henry would be pleased.

The Bottom Line This Week

The outlook is improving by inches, but we are a long way from being out of danger. It would not take a very big shock to send the economy and the stock market down again. As a result, we think the best strategy for investors is to use the positive trend we have now and buy blue chip stocks with good outlooks – but protect all your positions with stop-loss orders.

Association of Investor Awareness - Week of 03/26/2009

Research & Editorial Staff — Thu, 26 Mar 2009 13:45:00 GMT

In This Issue:

Banks And Auto Stocks Led The Way Down, And Now Up
Yes, The Rebound Could Be Another Bear Trap
If There Ever Was A Time To Use Stops, It’s Now!
In Many Cities, Real Estate May Be Set To Rise
The Bottom Line

Over the past month, the stock market staged a strong reversal as the Dow and the Nasdaq rose 6.9% and 9.1% respectively. As often happens when investment optimism begins to replace a long period of pessimism, small stocks did better than their larger cousins.

However, many blue chips also performed very well. For example, our first three picks from last month, JP Morgan Chase (JPM), Archer Daniels Midland (ADM), and Ford (F) jumped 21.5%, 5.3%, and 42.3% respectively. Our fourth pick, SPDR Gold Trust (GLD), dropped 2.4%.

Banks And Auto Stocks Led The Way Down, And Now Up

The sharp jump made by JP Morgan Chase was not an isolated event in the battered banking sector. Citigroup (C), Bank of America (BAC), and Wells Fargo (WFC) saw equally impressive gains of 19.4%, 40.2%, and 15.3%.

The best return of all was made by American International Group (AIG), a company we didn’t recommend because it carries too much risk. Over the past 30 days, however, many big investors unexpectedly reversed their outlooks for AIG and the stock jumped from $0.46 to $1.22 - a 165.2% leap.

We think the banks are still greatly undervalued and are likely to rebound more from their horrific plunges. The road back will be volatile because progress will depend largely on the success of the government’s bailout programs.

Nevertheless, at today’s ultra-low stock prices the risk/reward ratio appears to justify taking small positions in Citigroup, Bank of America and Wells Fargo. Fortunately, a small investment is all anyone needs to get positions in what could be the biggest rebound story of our time.

Of the three additional banks that could become top performers, Citigroup is in the worst shape. http://finance.yahoo.com/q/bc?s=C Bank of America is in somewhat better condition. http://finance.yahoo.com/q/bc?s=BAC One or both of them may fail. However, there are strong political as well as economic reasons for the government not to let that happen. But, if the bailouts don’t work and Washington ends up nationalizing the banks, the shareholders will be wiped out.

Wells Fargo is a better prospect. The bank will benefit from the possible demise of Citigroup and/or Bank of America because it would pick up much of their business. http://finance.yahoo.com/q/bc?s=WFC Even without that boost, Wells Fargo should survive the recession and the housing plunge, and begin to recover once conditions improve.

AIG must be considered a rank speculation, which we would normally never mention. http://finance.yahoo.com/q/bc?s=AIG But at $1.20 or so, we believe AIG’s potential to jump on good news is very good. If you want to add a little spice to your life, 100 shares of AIG should do the trick.

In the automotive industry, we continue to think that Ford has the best chance for a profitable recovery. As with the banks, a small position appears to make sense at today’s low price.

SPDR Gold Trust (GLD) continues to look good because it is a hedge against rising inflation and a declining dollar. Both conditions seem more likely to occur than they did last month because the Fed just decided to create $300 billion out of thin air to buy Treasury bonds. We think the make believe money will come back to haunt us within a few months.

Yes, The Rebound Could Be Another Bear Trap

Over the past year we warned that the many rebounds that came along looked like bear traps. In every case we were right. After a few days or weeks of moving up, the market suddenly reversed direction and tumbled to new lows. The same thing could happen again this time.

But even if this rally isn’t the lasting rebound we have all been hoping for, there are some solid reasons to think it could last longer than its predecessors. If so, the rally could be profitable even if it ultimately falls apart.

The first reason for optimism is the market had already fallen 54% when the current upturn began. That’s about as bad as bear markets get. Even if the bear returns for one more raid on stocks, he probably won’t have much further to go.

Secondly, fundamentals are also beginning to reach bear market lows. Many top-quality blue chip stocks now have P/E ratios under 10, which has often been a turning point in the past. Since interest rates are on the floor, low P/E stocks that pay good dividends are especially attractive this time around.

If There Ever Was A Time To Use Stops, It’s Now!

Because there is no way to know if the current stock market rebound is another bear trap or the beginning of a new bull cycle, you may be tempted to stay on the sidelines until the matter is settled.

But if you take the safest position and this rally turns out to be the real deal, you will miss out on its biggest gains. That’s because anywhere from 30% to 50% of a bull market’s returns often occur before most investors realize the turn has finally come.

Fortunately, you can buy stocks with reasonable safety if you place stop loss orders on everything you pick. If the stocks go up as expected, you can raise your stops as you go along. That way if the bear comes back, you will be taken out before much damage can be done.

Remember, stops are very easy to place. To use TD Ameritrade as an example, right after you buy a stock you would enter a sell order at the price you would want to be taken out. When you see “Order Type”, simply click “Stop Market” and enter the appropriate number. Since stops cost nothing until they are executed (which might never happen), they are the cheapest insurance you can buy.

There are only two downsides with stop loss orders that you should know about. First, if the market makes a big down move and then bounces back, you may be sold out when you would have been better off hanging on. Secondly, if the market drops very rapidly and hits your stop, by the time the order is executed the price may have dropped below your sell point. Alas, not much on Wall Street carries a 100% guarantee.

In Many Cities, Real Estate May Be Set To Rise

All the activity in the stock market of late is masking some improving numbers in the housing market. Although the real estate outlook overall is still poor, in some areas prices for rental residential properties have fallen so far that for the first time in nearly 20 years they can “pencil out.” That is to say, the rents they generate can cover the mortgage payments, taxes and maintenance costs – plus provide a positive cash flow to the buyer.

The tax breaks that go with real estate investments —and the potential for long-term appreciation from today’s depressed levels— make real estate even more attractive. In addition, the collapse of the late great housing boom is pushing many new people into the rental market.

As with the stock market, it may be a decade or more before residential real estate gets back to where it was during the boom. But you won’t need a full recovery to make excellent profits. Thanks to the leverage in most real estate investments, only a partial rebound could still double your money.

For example, if you buy a $300,000 duplex with a 20% down payment, the deal will cost you $60,000. Your duplex would only need to appreciate to $360,000 for you to double your money. Meanwhile, the renters will pay the bills.

One way to enter the rental residential real estate market is with experienced partners. In most communities there are groups of people who have been buying properties together for many years. With more attractive deals becoming available, and with credit now very tight, many partnerships should be happy to accept new members. Your attorney, or a seasoned real estate broker, should be able to make the necessary introductions.

The Bottom Line

Investors have been through the mill during the past year. However, we think the disheartening losses paved the way for a dramatic rebound. The upturn may be starting now, or it may not come until later – but it’s on the way. To make the most of it, you will need to put money in the market while most investors are too nervous to leave the sidelines.

Your safest bets are the blue chip stocks we have been recommending for months. More aggressive investors should also consider some of the oversold banking stocks that have been performing well of late. Although the risks are high with the banks, we think the potential rewards are even higher. You can stack the odds further in your favor by using stop loss orders religiously.

Residential rental real estate is also starting to look good in many markets. Ignore the naysayers who suggest that there is no money to be made because it may be ten or fifteen years before prices return to their 2006/2007 highs. As we explained in our discussion, you don’t need a big rebound to make a good real estate investment pay off handsomely.

Association of Investor Awareness - Week of 01/22/2009

Research & Editorial Staff — Thu, 22 Jan 2009 16:29:00 GMT

In This Issue:

Credit Rebound Coming From Unexpected Sources
Signs Of Life Are Returning To Some Real Estate Markets
A Home Town Advantage With Stocks
Forget The Bottom, Focus On Value
Two Leading Stocks Look Especially Good Right Now
The Bottom Line This Week

As the inauguration of the new American president approached, many analysts expected the market would have an "Obama bounce." Alas, that happy event did not occur. On the contrary, as further economic and banking industry worries continued to mount last week, the Dow and the Nasdaq dropped another 3.7% and 2.7% respectively.

The market fell another 332 points on Tuesday, when our new president took office. (Nothing personal, Mr. Obama. As the Godfather used to say, "it's just business.")

On Wednesday, however, the mood brightened and the market rebounded 279 points.

Credit Rebound Coming From Unexpected Sources

It isn't working out the way most economists expected, but the slow credit recovery is not coming from the big banks that have been receiving billions of dollars in bailout money. Those funds are simply replacing money that was lost during the period of fiscal madness.

Instead, smaller banks that didn't play subprime roulette, and don't need taxpayer's money, are starting to write checks to their more credit-worthy customers. Lending standards are stricter than they were during the go-go years that recently ended, but that's as it should be.

Banks are also reviewing business proposals with greater scrutiny. Lenders must be convinced that each idea has a good chance of being successful, which is also a return to sanity.

The bottom line is, if you have been holding fire on a business venture that would seem to fit the new criteria, this should be a good time to start contacting banks again.

Signs Of Life Are Returning To Some Real Estate Markets

Slowly rebounding credit couldn't be coming at a more opportune time. Some real estate markets are slowly starting to turn around. As we have been predicting for months, prices have fallen so far in many areas that many people who need a home are making their moves. Mortgage rates that are well below 5% are also attracting buyers.

Some of the biggest sales increases are occurring in our largest cities. In New York, for example, many condos that cost $1 million or so a year ago are now in the $500k to $600k range. For many people with good jobs, the bargains are proving to be too good to pass up.

Although it will probably be a year or more before the broader real estate market starts to recover, there are new signs of life in many of them as well. In Las Vegas, for example, home prices from last year are down 28%, but home sales are up 15%. In many other parts of the country, bidding wars are starting to take place for foreclosed homes that are being dumped by unhappy banks.

In some markets, real estate prices will probably continue to fall. In others, however, the most likely change will be on the upside. If you have been thinking about making a real estate investment, this might be a good time to start looking. This may be a sweet spot where price, interest rates, credit availability, and market potential all come together.

A Home Town Advantage With Stocks

It isn't only with real estate investments where locals are in a unique position to find top values. The same is also true with stocks. No Wall Street analyst can know as much about how a company is really doing than a local person who keeps his eyes and ears open.

Wal-Mart and Microsoft are two classic cases in point. In 1970 when Wall Street was cool about Wal-Mart's prospects, many people in Bentonville, AR noticed that the company was hiring. Passersby could also see that Wal-Mart's loading docks were bustling with activity. Local investors who trusted what they heard and saw above what the analysts were saying, ended up making a great deal of money.

Similarly in the 1980's, Bellevue, WA restaurants were buzzing with jabber by Microsoft employees who were excited about all the software they were writing and selling. Employees also said that their young boss, Bill Gates, was the smartest man they'd ever met. It would be an understatement to say that Bellevue investors who acted on what they heard are very glad they did.

It can be just as useful to be close by if a local company gets into trouble. A few years ago in Junction City, OR people noticed that employees at Country Coach Motor Homes were becoming worried about their jobs long before anyone on Wall Street knew anything was wrong. Alert investors who bailed out of the parent company, National RV, saved a great deal of money.

Forget The Bottom, Focus On Value

With both stocks and real estate, we urge readers to avoid trying to call the bottom of the markets. Instead, focus on investments that are attractively priced. If it becomes an even better bargain in a few weeks or months, it won't have any effect on your ability to make a profit at the price you paid.

Dan Ferris, editor of Extreme Value said it best: "Value isn't about hoping share prices go up, and it certainly isn't about attempting to predict the lowest share price. It's about knowing what a business is worth and paying a substantially lower amount than that." http://www.stansberryresearch.com/pub/evi/?gclid=CPT45NGVnpgCFQwxawodXxWLlQ

Of the many successful stock and real estate investors we know, only one claims to have gotten into his best performers at the absolute bottom. The other clients made their money by simply making good investments whenever they could be found.

Two Leading Stocks Look Especially Good Right Now

Speaking of Microsoft (MSFT), the economy and stock market turned two of the company's disappointments into an asset last year. http://finance.yahoo.com/q/bc?s=MSFT

As you may recall, in 2008 Microsoft made expensive bids for Yahoo and Facebook, but both deals fell through. Not only did that fortunate "failure" save Microsoft from suffering big losses when the stock market plunged, it also left the company with over $19 billion in cash.

Microsoft, of course, may use the market weakness to make another try for its two targets, which are now priced much lower than before. Alternately, Microsoft might make another one-time dividend boost to its shareholders, just as it did in 2004. If so, the true yield of the stock will be much higher than the 2.6% that it carries today.

Besides the cash hoard, Microsoft's ability to make strategic acquisitions, and its yield potential, the company's price looks very attractive. Microsoft was selling for $35 at this time last year. It is now just $18.50. That looks like a bargain to us.

If reliable dividend growth is one of your goals this year, (and it should be) we recommend an old favorite of ours, Procter & Gamble (PG). http://finance.yahoo.com/q/bc?s=PG The stock "only" yields 2.8% at present, but that's more than many of Uncle Sam's bonds are paying.

However, the real appeal of the company's dividends is that they have been increased for 52 consecutive years. That's a rock solid track record that the company is unlikely to change.

In addition, Procter & Gamble just announced that it is about to begin its most ambitious manufacturing expansion. The company is making the move to further capture business in emerging markets that are already delivering double digit growth. We think the decision will lead to much higher profits within a few years.

If you look at Procter & Gamble's low stock price, its dividend outlook, and the company's new global initiative, we think you get a very strong case for buying the stock.

The Bottom Line This Week

Inch by inch and flicker by flicker, the economic outlook is giving investors reasons to be hopeful. Although we are sticking with our prediction that the recession will continue to rage for several months, we also believe we will begin to see some relief late this year.

That's not to say that Joe and Sally MidAmerica will be out of the woods anytime soon. Life will probably remain tough for quite some time. However, many businesses are continuing to adjust to the new conditions and should start to rebuild their profits by the 4^th quarter.

Meanwhile, many of the most promising stocks –and some real estate deals- look very attractive. Among the former, Microsoft and Procter & Gamble look especially promising. In some real estate markets, homes and apartment buildings are also starting to pencil out.

Association of Investor Awareness - Week of 01/08/2009

Research & Editorial Staff — Thu, 08 Jan 2009 18:52:00 GMT

In This Issue:

It's Time To Start Looking Beyond Current Woes
A Big Cash Horde Is Always Bullish
When It Comes To Rebounds, Too Early Beats Too Late
Eight Blue Chips Many Pros Are Buying
The Bottom Line This Week

There's nothing like the start of a new year to shake investors out of a funk. It happened again a few days ago when the market rallied as the first of January approached. The week the calendar turned over, the Dow and the Nasdaq went up an impressive 6.1% and 6.7% respectively. It was an encouraging end to a dismal year that saw the two indices plunge 33.8% and 40.5% - the third worst performance in recent memory.

Alas, it is far too early to declare an end to the bear market. With manufacturing and home sales dropping to very low levels, it is clear that the economy is still sinking. But as we will discuss later, that doesn't mean that a recovery is off the table for late 2009.

Meanwhile, stocks stumbled during the first three days of this week. By Wednesday afternoon, the market had given up 265 of its hard-won points from the short bout of New Year enthusiasm.

It's Time To Start Looking Beyond Current Woes

Although the market is continuing to be volatile, the uptrend may have longer legs than events this week would suggest. As we reported in a recent issue, investors seem to be losing some of their sensitivity to bad news. Either everyone is so numb that nothing registers anymore, or investors believe the economy is bottoming out and some cautious buying is in order.

We suspect that the latter is the case. The investment press is starting to report that many Wall Street pros with noses for value are starting to launch bottom fishing expeditions. Although nobody is putting everything they have into the market, the amounts being invested are growing steadily.

One of the intrepid investors is Steve Leuthold of the Leuthold Group, a respected institutional research firm in Minneapolis. www.leutholdgroup.com Mr. Leuthold has been a bear for quite some time because he was one of the first analysts to realize the economy was heading for trouble. Recently, however, Mr. Leuthold said, "The stock market is presenting you with one of the great buying opportunities of your lifetime – perhaps the greatest. Stop trying to pick the bottom."

Another good analyst who is starting to pick up bargains is Jim Powell of the Global Changes & Opportunities Report. (www.powellreport.com) In his January newsletter, Mr. Powell wrote, "The CEO's of America's better companies are not jetting around the country in their Gulfstreams asking taxpayers to bail them out. Instead, they are adapting to today's tougher business conditions. Workforces are being slashed, wages are being rolled back, expansion plans are being put on hold, pensions are being cut, and businesses are otherwise becoming lean and mean. Those changes are causing a lot of pain in America, but they are also allowing many companies to earn profits in this damaged economy." Looking particularly good to Mr. Powell are oversold blue chip stocks with global operations.

Not every investment professional is taking long-term positions. Laszlo Birinyi of Birinyi Associates, a money management and research firm in Westport, Conn. is batting for yards rather than touchdown passes. In an interview in the January 5 Barron's, Mr. Birinyi said "We are willing to set up for 10% or 15% gains, especially in a short time period because we've seen the markets reverse so often and so swiftly."

A Big Cash Horde Is Always Bullish

When stocks started to plunge last year, billions of dollars were taken out of the market and were placed in cash accounts. The American Association of Individual Investors estimates that cash now represents 42% of portfolios, an unprecedented amount.

Unfortunately, cash isn't earning good returns anymore – as you are probably painfully aware. The interest rate on 90-day T-Bills is essentially zero. Even 10 year Treasuries are paying only 2.50%. As one retiree said recently, "I went from a comfortable meat and potatoes income to barely getting enough money to buy dog food."

Not surprisingly, investors are more than a little anxious to find a better home for their dollars. When the stock market starts to look attractive again, the flood of money back to Wall Street could give us one of the greatest bull markets in history.

When It Comes To Rebounds, Too Early Beats Too Late

We don't know when the economic tide will turn back up. As we said in recent issues, there is a good chance that we could see some relief towards the end of the year. But even if the market as a whole takes longer to rebound, many individual stocks should start to recover some of the ground they lost during the plunge. In fact, some have already started to rise – as many price charts quickly reveal.

As to the broader market, prices typically begin to recover from a steep downturn from six to nine months before economic growth resumes. That means investors must have the fortitude to buy what they want while the economy is still on the ropes.

It is also typical for new bull markets to deliver most of their gains within a few months –or sometimes weeks- after getting underway. That's another reason that investors should be positioned before a rebound begins.

Eight Blue Chips Many Pros Are Buying

We are not inclined to report what stocks other analysts are recommending, no matter how well known they may be. However, we make exceptions when the luminaries share our foresight, clarity of thinking, and brilliant analysis. Here then –in no particular order- are eight stocks that many pros have been buying, and a few reasons why they are attractive.

Johnson & Johnson (JNJ), an old favorite of ours, is up a bit in price but it still looks attractive with a 13.8% P/E and a 3% yield. http://finance.yahoo.com/q/pr?s=JNJ Earnings will be lower than usual this year but this global supplier of healthcare products has great long-term prospects. JNJ is a Dividend Aristocrat that has increased its payout in each of the past 25 years.

Kinder Morgan Energy Partners (KMP), another of our selections, is an energy storage and pipeline master limited partnership (MLP) that yields a whopping 8.6%. http://finance.yahoo.com/q/pr?s=KMP The issue is down with energy prices, but that appears to be a mistake. The volume of fuels being transported is remaining high.

Consolidated Edison (ED) is a major utility that operates in New York, New Jersey, and eastern Pennsylvania. http://finance.yahoo.com/q/pr?s=ED Since the company's customers have a good history of paying their bills in good times and bad, the yield seems secure. The company's location in normally high-growth areas means it should see more business when the economy begins to recover. This Dividend Aristocrat currently yields 6%.

Deere< (DE) is a well-known maker of farm equipment that does business worldwide. http://finance.yahoo.com/q/pr?s=DE What is less known about Deere is it also makes construction equipment that should be in demand as President-elect Obama's infrastructure projects go into gear. The yield is a modest 2.7% but the prospect for excellent capital gains makes Deere very attractive.

Transocean (RIG) is a world-class deep ocean drilling company whose shares dropped steeply as energy prices tumbled. http://finance.yahoo.com/q/pr?s=RIG However, energy prices are only down because global economic growth has declined. When it recovers, energy will shoot back up again. In fact, oil is already starting to rise. As with Deere, Transocean is primarily a capital gains play.

VF Corporation (VFC) is an anomaly in the clothing industry because its higher end outdoor products held up well as the recession set in. http://finance.yahoo.com/q/pr?s=VFC Although investors are starting to notice that they oversold this stock, the P/E is still just 9.9. The yield is 4.1%. The company also has a top management team that has accumulated $600 million in cash, some of which it may spend on acquisitions this year.

United Parcel Service (UPS) also saw its business hold up well when the recession set in. That's partly because Internet sales remained healthy and UPS is the web's biggest product delivery company. http://finance.yahoo.com/q/pr?s=UPS Of course, UPS is also a good play on the broad economy which is probably why Warren Buffett took a position in the stock. Meanwhile, the yield is a competitive 3.2%.

General Electric (GE) is a somewhat more aggressive play than the previous stocks because the company is suffering both from the economic slowdown and the credit crunch. http://finance.yahoo.com/q/pr?s=GE Still, most value analysts think the stock is oversold for its long-term growth potential. GE is selling for just 8.3 times earnings. The stock yields 7.3%

The Bottom Line This Week

We continue to think the economy will remain weak for the first two or three quarters of the year and then slowly start to move back up. Once there are tangible signs that the outlook is improving, the stock market should start to recover from today's abysmal levels. To catch the move, you must take positions while the recession is still in place and most investors remain glued to the bench.

Some noted investors are already starting to take positions in high quality companies that should benefit greatly from an economic recovery. This week we listed eight such stocks that seem particularly likely to increase in value over the next several years.

AIA Advocate for Absolute Returns : rebound

Association of Investor Awareness - Week of 04/30/2009

Signs Of A Better Economy? (Or At Least Not As Bad?)

Stocks For A Weak Recovery

The Bottom Line This Week

Association of Investor Awareness - Week of 03/26/2009

Banks And Auto Stocks Led The Way Down, And Now Up

Yes, The Rebound Could Be Another Bear Trap

If There Ever Was A Time To Use Stops, It’s Now!

In Many Cities, Real Estate May Be Set To Rise

The Bottom Line

Association of Investor Awareness - Week of 01/22/2009

Credit Rebound Coming From Unexpected Sources Signs Of Life Are Returning To Some Real Estate Markets A Home Town Advantage With Stocks Forget The Bottom, Focus On Value Two Leading Stocks Look Especially Good Right Now The Bottom Line This Week

Credit Rebound Coming From Unexpected Sources

Signs Of Life Are Returning To Some Real Estate Markets

A Home Town Advantage With Stocks

Forget The Bottom, Focus On Value

Two Leading Stocks Look Especially Good Right Now

The Bottom Line This Week

Association of Investor Awareness - Week of 01/08/2009

It's Time To Start Looking Beyond Current Woes A Big Cash Horde Is Always Bullish When It Comes To Rebounds, Too Early Beats Too Late Eight Blue Chips Many Pros Are Buying The Bottom Line This Week

It's Time To Start Looking Beyond Current Woes

A Big Cash Horde Is Always Bullish

When It Comes To Rebounds, Too Early Beats Too Late

Eight Blue Chips Many Pros Are Buying

The Bottom Line This Week

Credit Rebound Coming From Unexpected Sources
Signs Of Life Are Returning To Some Real Estate Markets
A Home Town Advantage With Stocks
Forget The Bottom, Focus On Value
Two Leading Stocks Look Especially Good Right Now
The Bottom Line This Week

It's Time To Start Looking Beyond Current Woes
A Big Cash Horde Is Always Bullish
When It Comes To Rebounds, Too Early Beats Too Late
Eight Blue Chips Many Pros Are Buying
The Bottom Line This Week